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Employees per Gross Sales12/1
Has anyone produced or studied in our industry (Custom Cabinet Making), data indicating the number of employees per 100k of gross sales or something along those lines? Or perhaps an average labor cost as a percentage of income? I'm looking for a general rule of course.
I think this is a good question but could depend a lot on different factors. We outsource all doors and drawers. A lot of shops make these and will need employees to do so. We also have a cnc which cuts down on a lot of labor hours. There are shops that can do 2 million with 6 guys in the shop and there are shops that struggle to do a million with 6 guys in the shop.
I ask this question to every wood shop owner I meet, and to any manufacturer I encounter. The following numbers refer to shops that are producing all of their work in shop, i.e. don't do a significant amount of reselling work manufactured by others (except for hardware.) The method is simple: divide gross sales by ALL employees, including office and whoever else is on the payroll, including the owner. Combine part timers to FTEs. Ignore overtime. Here are the numbers I've gathered:
Under $100k/employee: the shop is struggling, and/or the employees are poorly paid. There will be significant turnover and other HR problems. The owner may be making a very low hourly wage, when their pay is divided into the number of hours they are working.
$100k to $150k/employee: probably still a bad situation, with low profits, low wages, and turnover.
$150k/employee: this is the beginning of a profitable company where the owner makes a fair wage and then some, and employees can make enough to survive.
For further benchmarking, in 2019 my company did 4.066 million in revenue with 21.5 FTEs. That's $189k/head. All of them were well paid, with health insurance, vacations, and pension plan. Wages/earnings in my shop range from $20/hr to $80/hr for the salespeople (who get salary and commission, but that's what it works out to as an hourly wage.) I made $344k. Some of that salary, some profit.
I'm sure that there are others out there who have different numbers and different ideas as to what those numbers mean. Feel free to add your own numbers and tell us what you think is a healthy $/employee number. I've encountered numbers as low as $75k/employee and as high as $250k/employee for shops that did some outsourcing. (I've heard as high as $750k/employee for some kinds of consulting and software businesses.) Obviously, there will be geographic variation and other variation driven by the product and customer base.
I hope that more of you add your numbers - it's an interesting metric that I believe gives a very quick read on the health of a company. But like all numbers, it doesn't tell you nothing and it doesn't tell you everything.
I think 'Employees per Profit' would filter out a lot of noise from those numbers.
We will do about $5 million this year outsourcing very little and will average about $220K per employee this year. This is commercial millwork and stone/solid surface in house.
Historically one of the measurements has been sales dollars per hour per production employee. NASFM used to provide about 10 different metrics to use for analysis. I have posted this somewhere on this board in the past, whether search works or is still around is another issue.
For bids I subtract installation and sub contract items like stone from the sales price and divide by number of shop hours in the bid.
So I get this at time of bid as a cross check, I also use it as a cross check on change orders.
Total sales per production hour is this (with install and stone)
This sale is weighted differently because the stone is about 30% of the project and its install heavy (about 25% of the sale)
I use the number more as a check to make sure pricing is in a profitable range.
I agree with Paul's summation that that number is an important one. Be careful, though. Those numbers do not reflect changes in the dollar. When my shop first hit 100k per man, I thought I had arrived.
Two of us can hit 400k when we are busy and want to work the 40 a week (each) to make that. I'm only in the shop half the time, so the gross reflects that.
The dollars per production hour loses some value on jobs with high material costs that are lower labor costs and vice versa, gross margin is always the better indicator and net income before (adjusted) ebita or ebitda is best
If, as Paul Downs says, the number doesn't tell you nothing and doesn't tell you everything, then the number seems rather arbitrary, given the wide range of expenditures that any shop does or doesn't have.
If you are heavily indebted to the holder of the loans on your machinery, building, or operating capital, then gross per employee seems like just another statistic, fraught with assumptions and possible misinformation.
Perhaps as Oggie says, net profit per employee would paint a better picture, without the assumptions of what any shop's expenses, debt load, or tax situation may or may not be.
I seem to recall the tag line from an old tax-free mutual fund commercial: "It's not what you make, it's what you keep".
If I am wrong, please tell me why.
I agree with Paul, and have shared my numbers with him one time at a trade show. He's not kidding when he says he ask's everyone he comes in contact with when given the opportunity. It is a quick and dirty way to compare and see where you stand.
I'm also sorry that I'm posting Anon. I'm a components mfg. and I have customers on this forum and don't want to share these numbers with them.
I have 12 employees including my self and it looks like I'll finish the year at 2.1M in sales. $175K per man. Profitable, but I'm looking to improve on it next year with processing changes.
The reason I ask that particular question is because most people know the answers, including employees. I've talked to many, many workers whose bosses did not share any aspect of the company finances with them, but they knew those two numbers.
I have yet to meet anyone who was below 80k/employee who was in a sustainable situation. (Hobbyists excluded.) It correlates highly with high employee turnover, shady business practices, and missed payroll. Very large operations can get away with numbers below $150/k a head. Obviously, automation and outsourcing can shift the number significantly.
Questions about other aspects of finances get very complicated, fast. They also don't allow for quick comparisons across industries.
Ok now, these are very informative. I'm thinking of this in terms of the fewer employees it takes to generate x dollars in sales the better. To a point. We're at a point where we feel the need to add a front office person. These answers have been a great quick first step.
We did roughly 166K per employee at the custom residential shop I used to work - when we kept the pipeline full. Wages were decent, turnover was low - more people were encouraged to seek opportunities elsewhere than chose to leave. Profits were moderate but consistent. We outsourced very little, so labor costs were high. I think you are on the right track Nick, provided you have surplus capacity to handle an uptick in sales. Nice site by the way!
Thank you for the compliment on the site. I basically run the cabinet shop for the owner. He runs a remodeling business and we do cabinet jobs for those also. But I'm spread thin and getting inefficient and making mistakes due to being pulled in every direction. Trying to break down the process and see what category or categories a new person should take over as a job description. If it's warranted to hire an additional person. Or perhaps have the shop foreman take over some ordering, or hire a full time sales person to relive me of walk ins and customer relations.
Paul, what size shop, or number of employees do you have in mind when thinking of those numbers.
I've spoken to people in shops ranging from 1 to 200 employees. Not just woodworkers, either.
This year will end up around 250k per employee, Three of us full time and a part time kid that helps on the weekends.
We outsource 90% of all doors and all drawers. I'm defiantly looking to hire another person after the holidays.
This information is available yearly in the AWI Cost Of Doing Business Survey. It is an annual industry survey, and provides things like average pay rates by position, average number of employees, average balance sheet, average income statement, etc. From these you can deduce a lot of information.
The information is segregated by revenue size, region, high/low profitability, installation model (e.g. in-house or out-sourced).
From memory the average AWI firm reported revenue/head in the high $150k area (I want to say $157k but again just from memory). You can look at the average firm's net operating profit and decide whether being average is a good thing or not.
Old boss of mine always says: all numbers need a comparison. I buy this report annually to be that comparison.
I agree with Paul on this. One way to look at it is this. Most business seem to break down sales at about 1/3 is materials, 1/3 is labor and 1/3 goes to profit and overhead. If your under $100k per employee the above numbers canít work out because your employee cost is going to be over 50% of your sales number for any employee making 18-20/ hr
Congratulations, it seems like your sales have almost doubled since 2012 when you first publicly posted financial snapshots.
What were some of the factors that attributed to doubling your revenue? Was it purely sales/marketing improvements, did your market mature and expand etc? I'm guessing it's a combination of all those factors.
Here's to 5MM in 2021!
2019 sales 275k with one employee who transitioned to part time the end of the 3rd quarter. With this arrangement I worked 10-12 hours a day 6 days a week. Always behind, always stressed.
2020 sales will come in around 575k. Started the year with the one part time worker who ended up retiring in May. It took until September to find 2 great full time employees. 1 for production/machining, 1 for shipping/fulfillment, and myself for sales/administration. We will carry about 140k of backlog into 2021. Since the hiring of the 2 FT I have been working normal work weeks 40-50 hours a week, and the only weekend time at the shop is for improvements such as moving equipment around etc...
We sell bookcases and wine racks direct to consumer, stock designs nothing custom. Monthly sales have been up 2x-3x since April and everybody needed to get their home office arranged and were stockpiling wine reserves!
Jerry: Wow, you have been paying attention. Yes, we've made progress. It was really a combination of efforts on many fronts:
1) Website design and optimization, to increase the number of people who see the site. I took money out of my Google Adwords budget and put it into my site developers. We grew the number of people calling from 785 in 2012 to 1095 in 2019. (And it fell back to 840 this year.)
2) Sales training to maximize the yield from every lead. That included hiring a person who does nothing but take the initial contact and qualify that lead. A critical part of this was implementing call recording so that I could review what our sales team was actually saying to clients. I also hired a part time sales manager to review those calls and provide ongoing feedback to the sales team. Average sales per qualified lead went from $4343 in 2012 to $11,007 this year.
3) On the shop floor, I got rid of ineffective managers and found one that was both technically proficient and was a good people person. (Not the guy I described the book - he turned out to have some character issues.) I made sure that every critical person in the production chain had a backup, so they didn't get burned out. I started meeting with every employee, one on one, at least once a quarter.
4) I figured out a better way to hire, although the success rate has not been 100%. I standardized it - wrote the ad and saved it, made a scoresheet for every applicant that I can reuse, gave everyone the same test and asked them all the same questions. Now I don't need to scramble if I need to hire. I just run the process.
5) I forced the team to use our database tool effectively, so that they are all seeing the same information and can trust what they see. I also made them have regular meetings so that issues can be solved. This may seem obvious to anyone in a larger company, but when you are making the transition past 10 employees then it is very important that the company has more structure.
6) Checklists, checklists, checklists. Every time my team identifies a regularly repeated error, we put a checklist in place to make sure it doesn't happen again.
7) Writing down and living by a set of culture rules, so that we all know what the expectation will be for how we work, how we innovate, and how we disagree.
8) Making sure that everyone in the company understands the numbers, and managing to our production and financial goals. I do this through regular meetings to review financial concepts and performance.
9) A strong economy helped a lot.
This is a very quick list, and I'm not editing it for elegant language.